⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: A sober valuation analysis on $META 🧘🏽‍♂️

•NTM P/E Ratio: 22.65x
•10-Year Mean: 26.32x

•NTM FCF Yield: 3.60%
•10-Year Mean: 3.33%

As you can see, $META appears to be slightly undervalued

Going forward, investors can expect to receive ~16% MORE in earnings per share & ~8% MORE in FCF per share🧠***

Before we get into valuation, let’s take a look at why $META is a quality business

BALANCE SHEET✅
•Cash & Equivalents: $58.08B
•Long-Term Debt: $18.39B

$META has an excellent balance sheet, an AA- S&P Credit Rating & 148x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2019: 26.0%
•2020: 23.5%
•2021: 33.7%
•2022: 22.0%
•2023: 26.3%
•LTM: 31.7%

RETURN ON EQUITY✅
•2019: 20.0%
•2020: 25.4%
•2021: 31.1%
•2022: 18.5%
•2023: 28.0%
•LTM: 35.4%

$META has great return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2018: $55.84B
•2023: $134.90B
•CAGR: 19.29%

FREE CASH FLOW✅
•2018: $15.36B
•2023: $43.85B
•CAGR: 23.34%

NORMALIZED EPS✅
•2018: $7.57
•2023: $14.87
•CAGR: 14.45%

SHARE BUYBACKS✅
•2018 Shares Outstanding: 2.92B
•LTM Shares Outstanding: 2.64B

By reducing its shares outstanding ~9.5%, $META increased its EPS by ~10.5% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 81.5%
•LTM Operating Margins: 41.2%
•LTM Net Income Margins: 34.3%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~16% MORE in EPS & ~8% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $META has to grow earnings at an 11.33% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be greater than the (11.33%) required growth rate:

2024E: $21.26 (43.0% YoY) *FY Dec
2025E: $24.41 (14.8% YoY)
2026E: $27.97 (14.6% YoY)

$META has a decent track record of meeting analyst estimates ~2 years out, so let’s assume $META ends 2026 with $27.97 in EPS & see its CAGR potential assuming different multiples

24x P/E: $671.28💵 … ~12.7% CAGR

23x P/E: $643.31💵 … ~10.7% CAGR

22x P/E: $615.34💵 … ~8.6% CAGR

21x P/E: $587.37💵 … ~6.5% CAGR

As you can see, $META appears to have double-digit CAGR potential if we assume >23x earnings, a multiple slightly below what it’s trading for today and a multiple below what may be justified given its mid-teens earnings growth rate

And as we’ve already seen, the increased investment in future growth and necessary AI development has the potential to drive better growth prospects could be a bullish catalyst for the next several years

Today at $511💵 $META appears to be a decent consideration for investment

$META appears to be an excellent deal closer to $465💵 where it has ~11% CAGR potential assuming 2026E and a 21x multiple (an added layer of margin of safety)

#stocks #investing
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
tweet

⁠Stock Analysis Compilation
Davis fund on Applied Materials $AMAT US

Thesis: Applied Materials is primed to benefit from the AI boom, leveraging its expertise in advanced semiconductor manufacturing to capture a growing market share

(Extract from their Q2 letter) https://t.co/gptVE7XIlM
tweet

⁠Librarian Capital
FeverTree $FEVR: Growth doesn't depend on Gin

Even in UK, home of "gin & tonic":
- 28% of FEVR sales from non-tonics in H1
- Non-tonic categories grew by ~10% y/y
- Ginger Ale, cocktail mixers, soft drinks all growing
- Fever-Tree is #1 flavored soda brand in Off Trade https://t.co/f8SfdJQA3H

"FeverTree: H1 Showed Costs are On Track, Even if Growth is Not (Yet)"

$FEVR shares fell 12% after results and are lowest since 2016, but key parts of our thesis were validated.

https://t.co/uqjaYJE1qt https://t.co/KLbdWFjeUW - Librarian Capital
tweet

⁠Librarian Capital
Bill Ackman: "This looks credible" (on ABC debate cheating claims by "Black Insurrectionist")

Among the claims: "It was agreed that Donald Trump would be subjected to fact-checking ... while Kamala Harris would not face comparable scrutiny" https://t.co/dVOk5vgK9O
tweet

⁠Dimitry Nakhla | Babylon Capital®
RT @JohnDuttonSr: @DimitryNakhla No surprises here. Since I started following you, you've been pretty much spot on with your stock predictions. Congratulations, and keep up the great work.
tweet

⁠iinvested
2Q'24 Baron Small Cap Fund on $IBTA, $LOAR

https://t.co/WZ0Lb8qTvV

More fund letters here:
https://t.co/WRGkdL2eBG https://t.co/WWGaxISVyM
tweet